OMNIA Partners Blog

State Governments Joining the "Misclassification of Employees" Game

Posted by Tim Holland on March 05, 2015

With misclassification fines as one of the fastest growing revenue sources for the Federal Government, the Feds are now incentivizing States to help further drive this revenue engine. Working with the various states, Unemployment Insurance (UI) Tax Programs have stepped up audits and increased education programs for companies.

Corporate United has taken great notice of this over the past couple of years and has taken action to safeguard our members. As Independent contractors (ICs), or 1099′s, continue to be an integral part of many of our members’ labor strategies, CU has provided guidance through regional Contingent Workforce seminars as well as informational blogs and webinars. Most importantly we have added Populus Group, the premier IC Management Company, to our supplier portfolio.

Risks and Associated Costs

The costs of misclassifying are great, including penalties to the companies using falsely classified resources of $0.70 for every dollar ever earned by the worker. Additionally, the risks to the employers under the Affordable Care Act (ACA) are also high if the employee qualifies as a W-2 and not an independent contractor. The Federal Government, realizing the extent of employer error, are hiring auditors at an aggressive rate with a return on their investment of $7 for every $1 spent on salaries. When assessing these fines, the government can go back as far as three years.

In late 2014, a first of its kind federal program was created under the Consolidated Appropriations Act of 2014. Awarding “grants” to 19 states of up to $500,000, its goal is to help the UI Tax Programs fund increased activities and oversight to address worker misclassification. States like New Jersey, Maryland and Texas have been exceptionally aggressive in their audits of employers.

Decrease Liability

Corporate United members can limit their liability and exposure through the use of an independent contractor management program. For a minimal cost, bore by the contractors themselves, safeguards such as tax defense files and indemnification function as the firewall that is vital in mitigating the risk.

Corporate United offers a comprehensive program through its minority supplier program that manages these populations of non-employee resources at a cost that is 200% less than the traditional staffing service management model. If you are interested in learning more, please reach out to your member development representative or contact us.

Topics: Independent Contractor Compliance, Human Resources, Populus Group

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